By drawing an arrow to illustrate unilateral strategy changes for each firm we can see that there are two Nash equilibria for this game. Advertise, Advertise and Don't Advertise, Don't Advertise. In such game is is reasonable to predict that a Nash equilibrium will be the outcome. In this case the Advertise, Advertise solution (circled in red) is so clearly superior to the other Nash Equilibrium (circled in blue) that we can safely predict this as the outcome.
Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved